IRA rollover bridge loan
There is one final way to “borrow” from your 401(k) or IRA on a short-term basis. You can roll it over into a different IRA. You are allowed to do this once in a 12-month period.
When you roll an account over, the money is not due into the new retirement account for 60 days. During that period, you can do whatever you want with the cash.
However, if it’s not safely deposited in an IRA when time is up, the IRS will consider it an early distribution. You will be subject to penalties in the full amount.
This is a risky move and is not generally recommended. However, if you want an interest-free bridge loan and are sure you can pay it back, it’s an option.
Pros and cons of 401(k) withdrawal vs. 401(k) loan |
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The bottom line
There are several ways you can withdraw from your 401(k) or IRA penalty free. Still, we recommend not touching your retirement savings until you are retired.
Compounding can have a significant impact on helping to maximize your retirement savings and extending the life of your portfolio. You lose out on that when you take early distributions.
We understand that it’s always possible for unforeseen circumstances to arise before you reach retirement. Being aware of the exceptions allows you to make informed decisions and possibly avoid paying extra fees and taxes.
To take control of your finances, a good place to start is by stepping back, getting organized, and looking at your money holistically.
You can use Empower’s free financial tools to:
- Track your net worth over time.
- Review all your investments in one place.
- Make sophisticated projections for the success of your retirement plan.